You have a great business idea, and you are ready to launch your new venture but what do you do next to make the most of your business? Start with the basics. Take your time to get this right at the start as things will change throughout the course of your company’s life and as the company matures so will your understanding of your business needs. Set a strong foundation now so that any challenges you face are remedied quickly. 1. The team:
Start with your most important asset: the people. What resources do you need to make your business flourish? You may not need anyone at the start, or you may identify that you need expertise, funding or operational insight.
If so, consider the capacity in which this person can act for you. Have an open discussion to determine how involved (if at all) they want to be and what works for all parties. 2. Mission statement:
Decide the mission statement for the business. This is a short, concise statement of the aims and values of your business/brand. Mission statements are used to hold founders/senior leadership accountable when making big decisions about how the business is run, who it partners with and the type of talent it attracts. 3. Plan:
Consider the following:
What do you want to achieve?
What do you need immediately, in the medium term and in the long term?
Who else do you need to help you achieve your goals? Reflect on your mission statement and your reason for starting the business and keep these in mind when creating your plan. Keep referring to your plan to remind yourself of progress, or where needed, change. 4. Company type:
There are different types of companies, some of which depend on the type of business you are. Forming a company is often inexpensive and can offer certain tax benefits.
Make sure you research which type of company is the best for you and your business. Below is a list of common company formations in the UK: Companies
- Company limited by shares: the most common type of company, known as a limited company, where individuals are only responsible for the liabilities of the company to the extent of their investment.
- Company limited by guarantee: rather than having shareholders like above, a company limited by guarantee will have members who act as guarantors and contribute a nominal sum in the event of the company winding up.
- Unlimited company: this type of company has no restriction on shareholder liabilities; in the event of a formal liquidation the shareholders will be responsible for all the financial liabilities.
- Community interest company (CICs): CICs are created with the sole purpose of using their assets and profits to benefit the community, which is set out in the objects of the company.
- Limited liability partnerships (LLPs): these are often used for professional firms, LLPS are a separate legal entity from its members and therefore limits the liability of its members to the extent of their investment. In exchange for limited liability, the LLP must make their accounts public as the LLP is held to a higher level of scrutiny than some other partnership types.
- Limited partnership: This is not the same as the LLP and is often formed when two or more people have a united view and create a contract forming the basis of the terms of work, making this type of partnership relatively easy to form. Limited partnerships have two types of partners: those that have the management of the business and unlimited liability for debts and limited partners who invest equity into the business and have no management responsibilities and limited liability of the partnership’s debts.
- General partnership: Again, this is not like an LLP, a general partnership is not a separate legal entity from its members, and in this case, partners are jointly and severally liable for the debts of the partnership without limit.
Contributions to any business are either financial or skill based. Where you have non- financial contributors such as people with specific technical know-how or business skills, consider how they will be brought into the business; will they be an employee, a consultant, or will they become a director or a partner?
Remember to treat non-financial contributors with the same due care and attention as financial contributors. Non-financial contributors are equally as important to the successful launch (and longevity) of a business.
If you have been granted a design, content or form of intellectual property by someone who does not want to be involved in the business, think about how to compensate them for their work.
If you have a partner, have these conversations at the outset and agree the terms before formalising with a professional so that there are no surprises, and relationships are not tested early on.
Considering how the business will be funded, and who to ask can be overwhelming for founders if they have not done their numbers or research prior to funding meetings. Attempt to limit any curveball offers or awkward pitches by having some financial models based on changing scenarios prepared and: know your investor! Have a solid business case that appeals to your investor as well as aligns with your own plans.
Funding can be obtained through different means: personal funds, friends, angel investors, government loan schemes, bank loans, crowdfunding. Wherever the funding comes from make sure to consider the fundamentals:
- Funding amount: based on any financial modelling, determine the maximum amount of funding you will need that includes a little extra that can act as a safety net should you encounter any challenges during the infancy stages of the business venture.
- Funding terms: it is rare that funding is offered completely without the expectation of something in return. Often this will be shares or rights over the company. Take your time to consider how much equity you are willing to part with, or where you do not want to offer equity (or cannot offer equity) what other terms can you agree to: higher interest rates, shorter repayment periods, a subscription to rights?
- Remuneration: finally, don’t forget to consider how you (and anyone else in the business) are going to get paid, some options are:
Remember: where you can, try to align your investor type and terms with your mission statement and business plan.
The final stage is to formalise all of considerations above, and create the foundations of your company. Below is a list of just some of the areas that may be covered at this stage:
- Protection of intellectual property/confidential information/ design/content: it is important to futureproof this protection and consider who else may have contributed to a design/content etc. but is not a formal part of the business.
- Rights in the company
- Rights between shareholders
- Rights between partners
- Investment agreements
- Roles in the company
- Employment law
- Exit provisions: no one wants to think of the worst-case scenario, but by planning for it you can often avoid reaching it if all parties are aware of what the limits are (and can save friendships)
- Company formation
- Company governance
- Officer appointments
If you are thinking about setting up a start-up and would like to have a consultation with us, please contact Zoe Mortimer (email@example.com) or Joanna Stephenson (Joanna.firstname.lastname@example.org)